Ed Butowsky stated, “Bitcoin
is literally the riskiest tradeable asset right now, and I wouldn’t even call
it an asset. It is backed by nothing and based entirely on speculation. That’s
why it is so volatile. It’s a sucker’s bet, not a hedge.”

Cryptocurrency risk is assessed considering
the volatility. However, this is one asset type that is not correlated either
positively or negatively to any other asset type. A change in volatility affects the pricing
model of the target cryptocurrency.
Investors are forever in the lookout for reliable volatility
forecasts. Price changes influence
investor decisions and their decisions related to risk management.

Volatility influences speculative
action. Several stylized facts, which is
related to equity volatility and rival cryptocurrency forecasts, are essential
for volatility traders. Those who trade
volatility are those who stabilize the price according to certain analysts.

In the cryptocurrency market,
there is not a real gauge, which can help decide what makes an unnecessary
price fluctuation or necessary price fluctuation.

In traditional stock markets, to
insure against excess price fluctuations, they diversify their portfolio by
investing in different asset types.
However, in the cryptocurrency market, when the Bitcoin falls every
other token rises and falls with the asset type. Therefore, there is an unexplained confusion
about what is practical when it comes to diversification concerning
cryptocurrency asset types.

Cryptocurrency market experience is a mix of fundamentals, current market information, and the current market expectations. Interaction of all these elements echo the changes in the market. The intensity of price fluctuations is based on political stability, regulatory action, use-case of tokens; the arrival of new information which influences the market, more modern expectations, and the factors are endless. All of these factors embrace each other leading to a series of lagged responses.

Following the markets is critical
in the cryptocurrency trading process.
Investors invest a lot in getting superior quality market information.

The origins of volatility are
related to either uninformed behavior or a rational approach. Unjustified price variability and excess
volatility fade away in an efficient market. In the absence of special data
that determines the price trends, the whole market works with the same set of
information, and the speculators follow the market process.

Several investors judge their
performance, considering how their peers make their decisions. The market watches those who lose their
profits because they did not follow their peers. Whether one should fail conventionally or
succeed unconventionally in the cryptocurrency trading process decides the kind
of changes one would choose to make to their portfolio of cryptocurrency
tokens.

About The Author

A finance graduate, Maheen Hernandez has been drawn to cryptocurrencies ever since Bitcoin first emerged in 2009. Nearly a decade later, Maheen is actively working to spread awareness about cryptocurrencies as well as their impact on the traditional currencies.